Insourcing vs. outsourcing payroll


When it comes to running a successful business there are a number of areas that cannot be neglected, but few are anywhere near as a well-managed payroll system. Getting it right goes beyond merely choosing good payroll software. Do you opt for in-house payroll, or look to an external partner that can provide outsourced payroll solutions?

Why is payroll so important in running a healthy company?

Extremes aside, a badly managed payroll is costly. In Australia, it’s estimated that the top employers are guilty of around $4.4million (£2.35million) in payroll mistakes annually. Often this can result from insufficient resources for the department, and the job of rectifying the mistake means more expense.

The price of payroll professionals is rising all the time, too, although this shouldn’t be taken to mean that in-house is always worse than outsourcing. Ultimately, if you choose to cut corners in your own office or place trust in a poor payroll partner company the results will be the same – big problems.

Where one key differentiator can be found is in terms of people power, or perhaps more accurately people hours. If major expansion plans are in place, or the company has been going through a period of significant growth then it stands to reason that an outsourced payroll may be the best solution— freeing up more staff to concentrate on making sure that expansion stays on course.

Cost-effectiveness, rather than just cost, is also an issue. The average UK salary for a payroll manager is around £30,000 per year, and it’s believed that looking for a company offering tailored accounting solutions could save up to 50% off the cost of an in-house payroll department.

However, it’s important to realise that providers don’t necessarily come cheap. There are flat set-up fees, which can stretch into the thousands, along with a per-employee-rate, chargeable to each pay cycle. So if you’re looking for outsourced payroll, choosing the right people to run that managed payroll is obviously essential.

Nevertheless, in-house is still a great option for many businesses. Overall though, there are fewer costs incurred when you go with an outsourced payroll, which may make it easier to manage the overall budget. In addition to the flat fee and cost per-employee, the only real expense is comes from paying a member of staff for their time in managing the relationship between your business and the payroll provider. That could include hourly wages for meetings, travel costs, and so forth.

So what will your choice be when you need to decide to outsource your payroll or keep it in-house?

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